Friday, April 9, 2010

Airline merger talks boost stocks

The idea of combining United Airlines and US Airways into the world's second-biggest airline captures the fancy of airline managers, industry analysts and investors, who bid up the price of the two airlines Thursday on news of merger talks.
But what about passengers — and the low fares they enjoy?

"The consumer could be negatively affected," said George Hoffer, an economics professor at Virginia Commonwealth University.

"That's one less carrier to get nervous about its declining market share or weak consumer demand (for air travel) and to respond by launching a big sale, or by putting more seats into the lower-price categories," Hoffer said. "It's also one less airline that can refuse to go along with the fare increase."

The United-US Airways talks come as carriers here and around the globe increasingly look to consolidation in the industry as they continue to lose money amid the economic downturn that has kept travelers out of the air. On Thursday, for instance, British Airways and Spain's Iberia signed a merger deal in hopes it would help shore their sagging bottom lines. Barely two years ago Delta Air Lines took over Northwest Airlines to create the world's biggest carrier.

Consolidation also is appealing to many in the U.S. industry and to investors, who have witnessed the erosion of traffic for old-line, legacy airlines such as United and US Airways at the hands of discounters.

US Airways' stock jumped 10.7 percent to $7.55 a share on Thursday.

United's shares rose 6.8 percent Thursday to $20.23. Other carriers' shares also were up Thursday, but by smaller percentages.

Analysts say there are more discount airlines with stronger market shares — which could offset higher fares for travelers and offset regulators' concerns about a lack of competition.

And the airlines' labor unions, they say, could be induced to go along with a deal with offers of big pay raises and, potentially, stock in the merged carrier.

Those inducements could be funded by the cost savings and revenue gains that would be the result of a merger, they say.

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